The scene is pure postcard Japan. Layered mountain peaks shrouded in forests capped with smoky wisps of clouds and tiered rice paddies, a dazzling shade of green. So far, so haiku-inspiringly perfect - apart from one unexpected intrusion on the landscape. Centre stage in the tableau of pastoral perfection is a square frame the size of a small house from which are suspended dozens of giant wooden pencils in a rainbow of colours.

Contemporary art may be a surprise find in a remote corner of the mountainous Niigata prefecture in central Japan, but the isolated rural region - famous for its heavy snowfall, rice paddies and declining elderly population - is the unlikely setting for the most innovative of art projects, the Echigo-Tsumari Triennial.

It is the world's biggest open-air art festival and the fourth Triennial opened last weekend with more than 350 artworks by artists from 38 countries. Sculptures, paintings and installations pepper the landscape and are set amid rice fields, forests, in abandoned schools and vacant wooden houses.

Visitors will stumble across trees with staring blue eyes in the heart of a forest and life-sized red figures dotting the rice fields, a postmodern zen garden fashioned from rusted steel refuse and a sea of psychedelic canvases in a school gymnasium.

For Lots of Lost Windows by Akiko Utsumi. Photograph: H.Kuratani

The festival's geographical dimensions are as vast as its creative ambitions: the 760 sq km site spans a larger area than the 23 wards of central Tokyo, making an exploration of the region a giant art treasure hunt.

The best way to explore? Jump on a train in Tokyo for the two-hour ride to Tokamachi and join one of a number of daily group tours, or simply pick up a rental car at the station along with a festival "passport" that provides access to all the artworks, a much-needed art map of the region and an English-language guidebook.

Most visitors use Tokamachi, a small, sleepy city of wide streets, low-rise buildings and lowkey restaurants as a starting point for their art explorations.

Tamugi’s Book by Bili Bidjocka

Opting for the freedom of driving, I set off on a four-wheeled art-searching mission in the area last weekend, negotiating steep winding lanes lined with hydrangea that curved around vivid green rice fields and dense forests set against the layered silhouettes of mountain peaks.

The beauty of the landscape is astonishing and distracting, and so, even though the artworks are indicated by yellow festival road signs, it came as a surprise when one suddenly shifted into focus: a small wooden Hansel and Gretel-style house covered not in sweets but small circular mirrors shimmering in the wind.

Antony Gormley’s Another Singularity. Photograph: Keita Yasukawa

An elderly man with a farmer's cap was sitting in his makeshift office beside his car and stamped my passport so I could join a young Japanese couple already exploring the artwork.

The house - created by Harumi Yukutake - had no back wall, just a space opening onto a view of the fields, reflected endlessly in the thousands of mirrors that lined the inside walls.

Further along from the frame of giant pencils, by the Cameroon artist Pascale Marthine Tayou, were mirrors and golden pebbles; and a vast abstract window frame in a field with a curtain flapping in the breeze.

The area the festival covers is so vast that even with a couple of days it is impossible to see all the artworks so, rather unscientifically, I chose to stop at places I liked the sound of or whenever a yellow sign or roadside artwork caught my eye.

The works are varied, but of a consistently high quality, with a few names recognisable from galleries in London, Paris and New York. The piece I really wanted to see was a traditional wooden house which has been transformed by Antony Gormley for his piece, Another Singularity.

I slipped off my shoes to step inside the quiet, dark space, where the interior division walls have been removed and the building's shell filled with countless bungee ropes, arranged to create the outline of a human form in the centre.

I caught a minute with Gormley as he was opening the artwork during my visit. "I spent time drinking sake with some locals and the former residents of the house last night," he said. "They were all lovely and I was delighted at their reaction. One 83-year-old woman who was born in this house lay down on the floor and stared at it for a long time before declaring that she liked it."

Many of the empty buildings taken over by artists were once schools, an eerie fact that has been used to appropriate effect by some of the artists involved, such as Christian Boltanski and Jean Kalman, a French pair who have created a sinister world of empty classrooms, where fans whirl and the ominous sound of a heartbeat plays. I left clutching the unexpected souvenir of a CD recording of my own slightly raised heartbeat.

In another, Tomoko Mukaiyama has made an ethereal, swirling maze of 12,000 white silk dresses, with red clothes stained by the menstrual or "moon blood" at the centre.

And elsewhere Seizo Tashima, has created a sculptural version of a pop-up picture book from candy coloured driftwood, which tells the tale of its last three young pupils.

That so many vacant buildings are available is a rather sad outcome of the area's depopulation. As in much of rural Japan, the decline in the farming industry has carried youngsters away to the cities, leaving these remote villages with a shrinking elderly community to fend for itself.

I stopped for lunch back at Tokamachi for a mixture of freshly made soba noodles, tempura and vegetables. Although most of the human life I had seen while driving between the artworks were older folk, here it was clear from the clientele that the area has changed from a sleepy backwater since the triennale launched here in 2000. Older locals sat beside scruffy Tokyo art students and European artists.

The next stop on my art route was Fukutake House - another former school in Myokayama village which now hosts nine of the leading Asian art galleries.

Its original green boards, lockers and stark corridors, are offset by vast psychedelic etchings in the gymnasium, a sea of butterflies floating below a classroom ceiling and camouflage paintings on the walls of the former staff storage room.

Outside the school, a crowd of smiling elderly villagers was standing behind a stall serving homemade soy powder rice cakes, homegrown tomatoes and mountain vegetables in miso, and a slightly less palatable pond weed delicacy. Among them was Kazuko Kokai, a 66-year-old grandmother dressed in a flowery apron and pink wellies, with a bowl of potatoes in hand who burst into laughter when I asked how she felt about the invasion of artists.

"Modern art? I haven't got a clue what it means," she said. "I went to this school as did my grandparents, my husband and my children. But the school closed down many years ago and there are only three children in the village today. So if artists want to come and use this building and other spaces and it brings people to the area, then we welcome them."

It has not always been that way. In 1996 Fram Kitagawa, a well-known Tokyo gallerist, was asked by the prefectural authorities in Niigata to come up with a proposal to bring art to the region to help revitalise it. But according to Kitagawa, it was not a smooth journey.

"Every single politician in the area was opposed to the festival at first. It took four years and about 2,000 meetings to change their minds. But art can play a very important role in revitalising elderly people who have lost their hope, identity and vision of the future."

Light housesArt exhibits cum hotels

To take your experience of the exhibition to a more involved level, it's possible to spend the night in two of the artworks – homes that were turned into hotels by international artists for previous exhibitions.

At the Dream House, Serbian artist Marina Abramovic has transformed an atmospheric, rickety old wooden house, with four single bedrooms. I ate dinner at a low table with three other guests (all young, art-loving Tokyoites) before taking a dip in a hot copper bath filled with fresh herbs.

Next, I was dressed in a red all-in-one body suit, not dissimilar to a Teletubbies outfit, and led to the "red room". Centre stage was a coffin bed, with a pillow made from marble (and thankfully no lid) where I spent a surprisingly comfortable night until the sun came shining through the red-tinted window, infusing the room with the shade. All guests are asked to record their dreams in a big black book beside the bed.

At the second hotel, The House of Light, created by American artist James Turrell, a modern-built traditional Japanese house sleeps 12 in three rooms. It's a haven of clean lines, atmospheric light installations and traditional tatami floors, with a large bath and valley views. After a delicious bento box dinner, we unrolled the futons in the main room, lay down – and waited for the rain to stop so we could press the big button in the hall that would roll back the ceiling to reveal a perfect signature Turrell sky space. It took several attempts of rushing outside each hour to see if it was still raining, but eventually the skies cleared and we were able to lie back on our futons and drift in and out of sleep while watching clouds rolling endlessly through a square frame.

Another accommodation option, though unrelated to the festival, is Hinanoyado Chitose, one of the best hot-spring "onsen" inns in the region, in Matsunoyama Onsen village. The festival website lists several more places to stay.

• The House of Light (+25 761 1090, www11.ocn.ne.jp/~jthikari/e) sleeps up to 12, £130 per night, plus £20 lodging fee per person. Dream House (+25 595 6310), £40 per person per night; dinner is £18. Rooms at the Hinanoyado Chitose onsen (0081 25 596 2525; chitose.tv) start at £81 per person for BB&D. Book via the English language website japanican.com

Way to go

Festival information

Echigo-Tsumari Art Triennial (0081 25 595 6688, echigo-tsumari.jp/2009en) is on until 13 September but many of the works are permanent. A passport giving access to all exhibits is £23, available from the central information desk at Matsudai No-Butai (+25 595 6180), Tokamachi station or any of the artwork entrances.